On Tuesday billionaire investor George Soros disclosed a $35 million stake in Tesla convertible senior notes during the first three months of the year.

Convertible notes give investors the right to trade their debt for equity at a conversion rate and are more appealing to the risk-averse, allowing them to benefit from Tesla’s stock price rising while guarding against the risk that it might not.

Tesla’s stock price hit a high of $386 last year but has since slipped to close at $286.48 on Wednesday.

While Musk has said the electric car maker would not have to raise more cash this year, Wall Street disagrees, with analysts saying the company would need to borrow if it continues to fail to meet its own production targets for building new, lower-cost Model 3 electric sedans.

Investors who evaluated Tesla’s junk-bond offering last year now say a convertible offering appears a more likely option than returning to the high-yield market.

“It’s a wonderful trade,” said Ross Gerber, chief executive of Gerber Kawasaki Wealth and Investment Management, who earlier this year bought Tesla convertible bonds due in 2022 and said he is interested in buying more notes.

Tesla investors fretted in late March about the company’s ability to produce the Model 3. A crash involving Tesla’s autopilot technology and its falling bond price also took a toll.

“The company is burning cash at such a rate that a capital raise is nearly inevitable at some time in the next three quarters,” Henry Peabody, co-portfolio manager for Eaton Vance Multisector Income Fund, who said Tesla would likely use a convertible bond to raise funds.

Tesla could not be reached for comment.

“Given how volatile the stock is, there are a lot of convertible players out there that would clearly like this type of paper,” said a portfolio manager at a firm among Tesla’s top-10 bondholders. The investor, who declined to be named because they were not authorized to speak for the company, said they could be interested in such bonds.

RISK AND REWARD

If Tesla’s stock price stays around current levels, convertible investors, such as Soros, can reclaim the notes’ face value when they come due, a profitable trade if Soros bought them at a discount when the bonds were under pressure.

Soros Fund Management LLC took a $35 million stake in the Tesla convertible bonds due in March 2019 88160RAB7=, according to a filing with the U.S. Securities and Exchange Commission. Soros’ spokesman did not respond to questions.

In the case of the Soros’ Tesla notes that rate was initially set at a conversion price of $359.87, higher than the $286.48 per share the stock trades at today.

If Tesla’s stock rallies past its conversion rate, Soros could swap his Tesla notes into more than 97,000 shares of Tesla common stock, according to the bond’s prospectus and Soros’ filing. That could make for an even more lucrative trade.

Either way, convertible noteholders pocket interest totaling 0.25 percent per year in the meantime.

Hedge funds also like convertible bonds because they can use them to amplify or mitigate the risk of a short, or bet against, a company’s stock.

By contrast, with a junk bond, an investor’s best-case scenario is full repayment. Stockholders enjoy fewer protections if the company’s finances deteriorate.

Some wary investors said a convertible is a better option for Tesla than a junk bond, but not by much.

After raising $1.8 billion in its first junk bond issuance in August 2017, the 12.6 percent price decline of that bond 88160RAE1=RRPS since it was issued means markets will demand a higher premium on future debt.

Thomas Graff, head of fixed income at Brown Advisory Inc, said a convertible would probably succeed although he would probably not participate.

“A convertible would make a lot more sense given where they are,” said Graff.

Reporting by Kate Duguid and Trevor Hunnicutt; Additional reporting by Alexandria Sage in San Francisco; editing by Clive McKeef